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European antidumping legislation takes into account two aspects in deciding whether antidumping duties should be levied against offending importers. The first is called the "dumping margin," which is modeled as the difference between the relevant (exogenous) world-price level and the price charged in the target country. The second is the "injury margin," which can be taken to be the price difference relative to local competitors in the target market. If both margins are positive, dumping (world price higher than price of import) and injury (price of import lower than local price) are found, an antidumping duty can be levied. The amount of the levy is taken to be the smallest of injury and dumping margins.
We analyze the strategic behavior of a local company and an importer who anticipate possible levies as a result of their pricing behavior. This is modeled as a two-period Cournot game, where the first period sets the conditions under which the second period subgame will be played. The results indicate that the introduction of the injury margin leads to markedly different strategies from the U.S. settings where the levy is based on the dumping margin only (although both dumping and injury are prerequisites). In general, while the amount of the levy may be lower because of the injury-margin criterion, the impact on prices and quantities may be opposite to the case where the dumping margin alone is the basis for the duty.
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